What Is a Moonlighting Policy?
A moonlighting policy (or outside employment policy) is a provision in an employment agreement that addresses whether and under what conditions an employee may hold a second job, freelance, consult, or operate a side business while employed. These policies balance the employer's need to protect its interests with the employee's freedom to pursue additional income or personal projects.
Why Moonlighting Policies Matter
Protecting Business Interests
Employees who moonlight for competitors or in related industries may inadvertently (or intentionally) share confidential information, divert business opportunities, or create conflicts of interest. A moonlighting policy sets clear boundaries to prevent these risks.
Performance Concerns
Working a second job can lead to fatigue, reduced productivity, and scheduling conflicts with the primary employer. A policy that addresses these concerns helps maintain performance standards.
IP Ownership Clarity
When an employee works on projects outside their primary employment, questions arise about who owns the intellectual property they create. A moonlighting policy works in tandem with the IP assignment clause to clarify ownership boundaries.
Legal Boundaries
Employers must be careful not to overreach. Blanket bans on outside employment may be unenforceable in some jurisdictions, and some states have enacted laws protecting employees' right to engage in lawful off-duty activities.
Types of Moonlighting Policies
Blanket Prohibition
The most restrictive approach prohibits all outside employment or business activities. While this provides maximum protection, it may face enforceability challenges in some states and can deter talented candidates who value autonomy.
Disclosure and Approval
The most common approach requires employees to disclose any outside employment and obtain approval from the employer before accepting it. The employer then evaluates whether the activity creates a conflict of interest, competitive concern, or performance risk.
Conditional Permission
This approach permits outside employment subject to specific conditions:
- The outside work must not compete with the employer's business
- The outside work must not use the employer's resources, time, or confidential information
- The outside work must not interfere with the employee's job performance
- The employee must comply with any applicable IP assignment provisions
A disclosure-and-approval approach is generally the best balance of protection and flexibility. It allows employees to pursue legitimate outside activities while giving the employer the ability to identify and address genuine conflicts.
No Restriction
Some employers, particularly in tech and creative industries, do not restrict outside employment at all. They rely instead on their confidentiality, IP assignment, and non-compete provisions to protect their interests. This approach is most common at companies that want to attract entrepreneurial talent.
What to Include in the Policy
Definition of Outside Employment
Define broadly what constitutes "outside employment." This should cover:
- Full-time or part-time employment with another employer
- Freelance or consulting work
- Operating a personal business or startup
- Serving on boards of directors (for-profit or nonprofit)
- Teaching, speaking, or writing engagements
Disclosure Requirements
If your policy requires disclosure, specify:
- When disclosure must be made (before accepting outside work)
- What information must be disclosed (employer name, nature of work, expected time commitment)
- Who the disclosure is made to (direct manager, HR, or legal)
- How often disclosure must be updated
Approval Process
If approval is required, the agreement should explain:
- Who has authority to approve or deny outside employment
- The criteria used to evaluate requests (conflict of interest, competitive concerns, time commitment)
- Timelines for responding to requests
- Whether approval can be revoked if circumstances change
Prohibited Activities
Even permissive moonlighting policies typically prohibit:
- Working for a direct competitor
- Soliciting the employer's clients or customers
- Using the employer's confidential information, equipment, or resources
- Working during the employer's business hours without permission
- Activities that create a conflict of interest
Some states, including California, Colorado, New York, and North Dakota, have laws protecting employees' right to engage in lawful off-duty activities. In these states, employers generally cannot prohibit moonlighting unless it creates a direct conflict of interest. Make sure your policy complies with applicable state law.
Interaction With Other Agreement Provisions
IP Assignment
The moonlighting policy should be consistent with the IP assignment clause. If the IP assignment clause covers all inventions related to the company's business, the moonlighting policy should reinforce that any work product created during outside employment that falls within this scope belongs to the employer.
Confidentiality
Employees who moonlight must understand that their confidentiality obligations apply at all times — including during outside employment. The moonlighting policy should explicitly state that the employee may not use or disclose the employer's confidential information in connection with any outside work.
Non-Compete
If the employment agreement includes a non-compete clause, moonlighting for a competitor may violate the non-compete even if the moonlighting policy technically permits outside employment. These provisions should be coordinated to avoid ambiguity.
Duty of Loyalty
In many states, employees have a common-law duty of loyalty to their employer during the employment relationship. This duty may restrict certain types of outside employment (such as working for a competitor) regardless of what the employment agreement says.
Industry-Specific Considerations
Technology
Tech companies often deal with engineers who want to work on side projects, contribute to open source, or participate in hackathons. A well-designed policy can accommodate these activities while protecting the company's IP.
Financial Services
Financial services employers may face regulatory requirements that restrict outside business activities. FINRA rules, for example, require disclosure and approval of certain outside activities for registered representatives.
Healthcare
Healthcare providers may moonlight at multiple facilities. The agreement should address how moonlighting affects on-call obligations, insurance coverage, and credentialing.
Education
Teachers and professors often engage in consulting, writing, and speaking. The policy should address how these activities interact with the institution's IP policies and teaching obligations.
Enforcement
Monitoring
Employers should not actively monitor employees' off-duty activities in most cases. Instead, rely on disclosure requirements and periodic attestations. However, if an employer learns of a violation, prompt and consistent enforcement is important.
Consequences
The agreement should specify the consequences of violating the moonlighting policy:
- Warning and requirement to cease the outside activity
- Disciplinary action up to and including termination
- Potential enforcement of IP assignment and confidentiality provisions
Best Practices
- Use a disclosure-and-approval model rather than a blanket prohibition
- Define outside employment broadly to cover freelancing, startups, and board service
- Coordinate with IP assignment and confidentiality clauses
- Comply with state laws protecting lawful off-duty activities
- Be reasonable — Overly restrictive policies hurt recruiting and morale
- Enforce consistently — Apply the policy the same way for all employees
- Review periodically — Update the policy as the business evolves
- Communicate clearly — Make sure employees understand the policy and the rationale behind it
A well-crafted moonlighting policy protects the employer's legitimate interests while respecting the employee's autonomy. The goal is not to control every aspect of the employee's life outside of work, but to prevent genuine conflicts that could harm the business.